Generalizations regarding the growth and decline of manufacturer and store brands
Introduction
Brand share growth, whether measured by units, volume, or dollars, is a key objective for most firms (Shugan and Mitra, 2013). A growing brand typically gains revenue and net profit, while growth indicates that the accompanying marketing support is working more effectively than competitor efforts. Growth can favorably affect unit costs through economies of scale (Baye, 2009), including manufacturing, logistics, and advertising costs (Hirschey, 1982). Brand growth – compared to stasis – also provides the brand with a positive story to tell distributors.
The flipside of growth is decline, which is accompanied by negative factors that are the opposite of those that accompany growth—decreased revenue, anxiety about the future of the brand, and the prospect of staff layoffs (e.g., Canadian Press, 2013, Stanford, 2014). Indeed, decline may presage future decline, if channel members make stocking and support decisions for the future based on current sales trends (e.g., Borin et al., 1994, Cox, 1970). While the reasons for decline vary, good management to reverse a declining brand must first understand the patterns of erosion in share, to determine the appropriate remedy.
Limited evidence currently exists on the issue of brand decline, as papers examining market dynamics tend to focus on growth. In the one exception, Ailawadi et al. (2001) found that decreases in coupon and other promotion activity presaged brand share decline for P&G brands, mainly manifest in penetration falls. However, further evidence across a wider scope of brands is needed to develop generalized knowledge about how brands grow and decline in share.
The focus of the present study is not to attempt to answer why brands grow or decline, but rather to detect generalized findings regarding what happens as brands change in share. To achieve this, we examine two key dimensions: buyer penetration, or the proportion of the market that buys the brand in the time period; and loyalty, which is how often or how much customers buy. Specifically, we address the following questions: How do these metrics change when a brand׳s share grows or declines from one year to the next? Does only one of these metrics usually change, or do they both change, and if so, in what proportion? The context of the study is packaged goods sold in supermarket retailers.
The answers to these questions have important managerial implications for marketing strategy and for future research to uncover the why. For example, if brand growth involves marked increases in loyalty from a comparatively stable buyer base, the implication is for managers to expend more effort targeting current buyers. By contrast, if virtually all brand growth comes from an expanded customer base with little change in loyalty, the implication is to prioritize recruiting new buyers. This question is unresolved in the literature, where theory favors growth and decline via loyalty (e.g., Reichheld, 1993); however, the limited empirical results tend to favor the influence of penetration change over loyalty (e.g., Anschuetz, 2002, Baldinger et al., 2002). This study contributes to the brand growth and decline literature. It addresses the mismatch between theory and empirical findings on the topic with a large scale, cross-category study that investigates brands managed by both manufacturers and retailers.
While the benefits of this knowledge and its possible practical implications to manufacturers are obvious, this issue is also relevant to retailers. Retailers rely on steady sales of popular MBs to earn revenue and are now typically brand managers with a portfolio of store brands (SBs). Further, other retailers are also developing SBs to attract and retain customers. Store brands differ systematically from MBs due to restricted single-chain distribution, historical positioning, and lack of mass category-specific advertising. They can also differ in terms of performance metrics, with several studies finding SBs tend to exhibit higher than expected repeat-purchase loyalty (Pare and Dawes, 2011). Therefore, it is important to determine if the patterns of growth and decline for MBs also generalize to SBs, as it will determine the extent to which managers of SBs need to employ different tactics to stimulate growth or reverse decline. While industry reports suggest high-frequency buyers are key to SB growth (Loechner, 2010), solid empirical evidence as to the manner in which SBs grow is lacking. The literature to date has examined related issues, such as the impact of SB introduction and growth on category margins, prices, and consumer behavior. For example, Ailawadi and Harlam (2004) find percentage margins are higher for SB but dollar margins are lower. Bonfrer and Chintagunta (2004) found MB prices do not necessarily change as a result of SB introduction, while Anselmsson et al. (2008) found grocery brand prices tend drop as SB shares rise, but MB do not tend to lower their price as SB share rises. Cotterill et al. (2000) found MB price competitiveness became more important when SB share was high, while Pauwels and Srinivasan (2004) found SBs tend to hurt second-tier MBs but help premium MBs. Therefore while a substantial body of knowledge exists as to the effects of SB growth, little is known about how SBs grow (or decline). Store brands do not appear in any of the prior empirical studies explicitly examining how brand grow or decline. Furthermore, since none of the studies address if SBs growth paths differ from MBs, it is unclear if the brand strategies for MBs can be successfully extrapolated to the different condition of SBs. This shortcoming may reflect the timing and location of past research, as majority of the studies were conducted before the growth in SBs and/or in countries where SBs lack strength. SBs are also particularly vulnerable to competition from other SBs (Dawes and Nenycz-Thiel, 2011, Nenycz-Thiel et al., 2009). This makes knowledge of how SBs grow managerially relevant both to retailers and manufacturers as well as an important contribution to the SB literature.
Our contribution to the literature on brand growth and decline is to conduct an extensive empirical study utilizing 63 consumer goods category datasets in the UK over a five-year period, from 2003 to 2007. We identified 1093 instances of brands that grew or declined in brand share from one specific year to another.
We extend past research by comprehensively covering a number of areas that have been overlooked in past studies. First, we include two measures of loyalty: purchase frequency (PF) (e.g., Anschuetz, 2002) and share of category requirements/wallet (SCR) (e.g., González-Benito and Martos-Partal, 2011), to explore the role of loyalty in growth in more depth. The relative role of these two metrics in brand growth and decline is the main focus of the study. Second, we examine decline as well as growth. Third, we specifically examine SBs as a separate class of brand, across different retailers. Finally, we include potential covariates such as the brand׳s initial market share and category type.
While our study is limited to one country, the UK, this is widely acknowledged as a developed but still growing SB market. Therefore, the knowledge gained from this country at a time of substantive SB growth can be extended to other, less fully developed SB markets.
We now examine past work to contextualize the study, and form the basis of the research questions.
Section snippets
Manufacturer brand growth
This section firstly covers the relative impact of penetration and loyalty to brand share growth in the context of MBs. Theoretical and empirical research studies on MB growth are also explored in this section. The discussion then turns to growth for SBs, with research propositions following each subsection. The same structure is applied to the section on brand decline.
The body of literature on growth or decline for established brands is surprisingly small. This is likely because brand share
Manufacturer brand decline
While several authors propose theoretical viewpoints on brand decline, few empirically investigate the phenomenon. Kapferer (2008) suggests that brand decline starts when consumers perceive less of a difference between a focal brand and the competition. As a result, the consumer “still likes it but may now become disloyal” (p. 241), implying that decline will be accompanied by markedly lower loyalty metrics. Thomas and Kohli (2009) state that decline is usually preceded by heightened
Markets and data
The data used to address the research propositions come from packaged goods categories in the UK during 2003 to 2007. During this time period, total SB share grew by 25 percent (Mintel, 2011). There was also increased competition in the SB sector, with more brands from more retailers entering a wider range of categories. This scenario provides the potential for observing dynamics across both MBs and SBs. The analysis covers a diverse set of 63 consumer packaged goods categories. Categories were
Results
We commence by tabulating overall changes in brand share, as well as penetration and loyalty metrics, for both MBs and SBs. The key finding from this initial descriptive analysis is that when brands grow (see Table 5), overall penetration changes proportionally 2.8 times more than purchase frequency and 3.2 times more than SCR. The ratios of change in penetration to loyalty are systematically higher for SBs than MBs (3.1 versus 2.6 and 3.5 versus 2.7, respectively). For decline, overall the
Discussion
The aim of this paper was to identify the relative contribution of penetration, purchase frequency, and share of category requirements to brand share change. While axiomatically these variables must change as share changes, not enough is known about the extent to which each alters as brand share evolves from one year to another. Furthermore, we sought to develop generalized results across dozens of product categories, two measures of loyalty and to compare manufacturer brands with store
Future research directions
Our research focused on SBs as a subcategory of brands, but recent developments have seen the evolution of premium SBs (Kumar and Steenkamp, 2007a), which are often sold at a similar price to MBs. In the time period we covered, the premium SB market was still under-developed. Therefore, an important direction for future research is to determine how premium SBs grow. This, along with further extensions into other brand sub-types such as premium MBs, leader versus follower brands, or economy
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